June 2020

Oil and gas in the capitals

Latin America’s E&P moves at reduced rate
Mauro Nogarin / Contributing Editor

In Latin America, like elsewhere, the Covid-19 virus has generated a series of operational and financial adjustments in the oil-and-gas-producing countries. The trend is to decrease administrative and operating costs, as in the case of Colombia’s Ecopetrol.

The bond issue carried out by Mexico’s Pemex before the arrival of Covid-19 has been affected partially by the negative exchange rate that it generated on the debt. There is a different situation at Ecuador’s Petromazonas, which aims to increase oil production after its exit from OPEC, to guarantee advanced field exploration projects and reduce exploration risk.

Colombia. In mid-March, Ecopetrol’s board of directors adopted a set of measures to address the new market conditions. The result of that session was a reduction of $1.2 billion in the 2020 investment plan, for a new level between $3.3 billion and $4.3 billion. These measures were aimed at intervening in those wells that are in the early stages of maturation, seeking to preserve the production level of the consolidated fields, thus safeguarding the structural integrity of the company.

From a financial point of view, Ecopetrol has credit lines for $665 million available with international banks. And terms for an additional credit line of $270 million have been agreed with local banks, which are in an authorization process with the Ministry of Finance and Public Credit.

In the new exploratory campaign, the Ecopetrol Group and its partners completed the drilling of three wells in Colombia. Meanwhile, on the international level, the drilling of the Gato do Mato-4 well stands out, offshore in the Santos basin, in the pre-salt of Brazil. Regarding production during first-quarter 2020, average production of the Ecopetrol Group reached 735,000 bopd, which is 7,000 bopd more versus first-quarter 2019. However, there is now deterioration in the current market environment.

Around 40% of the investment plan approved for 2020 has been optimized, which mainly involves suspending acquisition of seismic information and postponing the drilling of some wells, in an effort to boost the group’s profitability and sustainability. Likewise, as preventive measures for the spread of the virus, Ecopetrol is operating with the minimum necessary personnel. Also, various projects and drilling work have been stopped temporarily at a safe, optimal point.

Mexico. On Jan. 21, Pemex placed on the international capital markets two benchmark bonds for 11 years and 40 years, for a total amount of $5 billion. Two months later, when the pandemic problem was approaching, Pemex implemented a reduction in its investment budget of $1.95 billion.

This measure was able to partially address the decrease in sales during first-quarter 2020, which reached 20.3%, compared to the same period of the previous year. As of March 31, Pemex had invested $2.9 billion, which represents 21.1% of the investment scheduled for 2020.

Oil production during first-quarter 2020 reached an average 1.759 MMbpd, thus registering a growth of 63,000 bpd, with respect to the same period of the previous year. Meanwhile, Pemex's natural gas production (not including nitrogen) registered 3.738 Bcfd, with an increase of 69 MMcfd, compared to the first quarter of 2019. The budget that will be applied in the coming months of 2020 will be channeled into projects with greater economic rationality and high profitability.

Regarding the debt of the first quarter, it has been affected by the exchange loss of 469.206 billion pesos. This reflects that the exchange rate of 2019 was 18.45 pesos to one dollar, but on March 31, 2020, it was 23.51 pesos to the dollar.

Ecuador. During 2019, Petroamazonas EP reached a production level of 423,970 boed. Given this result, the state oil company met 99.79% of its production target set by the Ministry of Hydrocarbons. The figure obtained is the result of the execution of drilling and reconditioning campaigns promoted by the public company, which in total managed to drill 250 wells.

During 2018, production had reached 406,738 boed. During 2019, Petroamazonas EP increased its average annual production by around 4%. The production obtained by Petroamazonas EP had an operating budget of approximately $2.855 billion, with a total cost of $18/bbl of oil. Currently, the state oil company accounts for 80% of national oil production, through its operation of 22 blocks: 19 in the Amazon region and three on the coast, including the Amistad natural gas platform.

On March 6, 2020, Petroamazonas EP awarded an integrated services provision contract for the drilling of 24 new wells in Tambococha. The new producing wells will have an investment of around $148 million and will allow a production increase of around 7,500 bopd. This new phase of drilling is essential to progressively increasing the oil production planned for 2020, estimated at 440,900 boed for an annual average.

Peru. At the end of December 2019, BP entered into six CET-C contracts with Perupetro for two years, to evaluate hydrocarbons in the Salaverry offshore basin.

In mid-February, Perupetro finished drilling the first offshore well. Total investment was estimated at $100 million.

The drilling of the Marina 1X exploratory well in Block Z-38 (Tumbes) was completed without reaching the expected results. However, for 21 days, with the highest technology standards in the global industry, it has provided valuable geological information about the Tumbes basin. The well marks a significant technological and prospective milestone for deepwater exploration in Peru. Although prospective results are not as expected, it provides valuable information about the Tumbes basin.

Of 18 oil basins that Peru has, only five have been explored and produced. This is due to the sparse technical and geological information available.

About the Authors
Mauro Nogarin
Contributing Editor
Mauro Nogarin m.nogarin@mediasur.net
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